Alibaba Earnings Point To 25% Upside, MKM Says

MKM Partners upped its price target on Alibaba Group Holding (BABA) to $155 Tuesday, the highest estimate on Wall Street.

The impetus this week: Alibaba earnings Thursday. The fresh MKM target implies upside of 25%. The stock is up nearly 2% to $123.73 today, despite news that the initial public offering of Alibaba payments affiliate Ant Financial Services Group will be delayed until late 2018 or early 2019. The business has been valued at $60 billion. Ant is controlled by Alibaba founder Jack Ma, rather than directly by Alibaba. Chinese regulatory matters and Ant's ownership structure may be contributing to the IPO delay, the Financial Times reported.

MKM Partners Analyst Rob Sanderson writes that he moved his Alibaba target from $130 to $155 in anticipation of strong Alibaba results, which are to be announced before the open Thursday. The bulk of the revised target comes from applying multiples to estimated calendar year 2018 estimates, he added. Sanderson writes:

" ... We are expecting strong results driven by solid gross merchandise value (GMV) growth and continued monetization gains. We are raising top line estimates ahead of the report and are lowering group level earnings per share on higher taxes. Our segment margin assumptions remain unchanged for core commerce and modestly better for other segments. We continue to see considerable value in the sumo of the parts and think that continued strength in commerce is the catalyst for unlocking value. We are raising our 12-month price target to $155 as we roll forward to CY18 estimates. Government and third party data, results from peers and anecdotes from other participants suggest very healthy consumption trends and online share gains within Chinese retail. We believe BABA continues to apply big data to improve ad relevance and click-through rates, which we think will drive solid monetization gains. ... We still think the breadth of BABA’s key assets and significance of its consumer data story is not well understood by U.S. investors in general. Of the U.S. mega-caps in the Internet sector, we believe there is nothing as powerful as BABA’s ecosystem ..."

Sanderson in April talked up Alibaba's opportunity in cloud computing, which he thinks could be $20 billion in five years. At the time, he noted "Alibaba has been investing in its cloud business for the past eight years, about three years later than Amazon.com (AMZN) and four years earlier than Google's Alphabet (GOOGL).

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.